TORONTO, Jan. 15, 2014 /CNW/ - Opaque budgeting methods and financial reports in Canada's major cities baffle councilors and taxpayers, according to a report released today by the C.D. Howe Institute.
In "Baffling Budgets: The Need for Clearer and More Comprehensive Financial Reporting by Canada's Municipalities," authors Benjamin Dachis and William B.P. Robson, say fixing these flaws is a critical step toward better accountability to voters for municipal spending and taxation.
The report reveals leaders and laggards among Canada's major cities when it comes to transparent budgeting that allows comparison between budget promises and actual spending over the ensuing year. "City budgets are needlessly confusing because the headline totals for revenue and spending are usually not comparable to those in the year-end financial reports," commented William Robson. "Judging whether a city over- or under-shot its budget targets, and by how much - which should be a simple matter of comparing headline numbers - is not possible for a typical councillor, taxpayer or citizen."
The authors look at the last 10 years of municipal budgets and financial reports for cities from coast to coast and calculate the gaps between the planned spending changes and what cities presented at the end of the year. Among Canada's largest cities, Toronto and Waterloo Region rank best, with gaps of less than 5 percent, but the worst - Brampton, Halton Region, and Vaughan - have gaps of around 20 percent, and cities generally are far worse at hitting their targets than Canada's federal and provincial governments. (See report for complete rankings.)
While most of Canada's federal and provincial governments now use the same accounting methods in preparing their budgets and their financial reports, municipalities typically do not, note the authors. "Most of Canada's senior governments use modern "accrual" accounting that matches the costs of long-lived assets such as buildings and infrastructure to the period they deliver their services," said Benjamin Dachis. "Most municipal budgets, by contrast, show that year's cash outlays on capital, exaggerating the up-front cost of major projects, and understating their later expenses."
Dachis and Robson argue that inappropriate budgetary treatment of capital assets and accounting differences between budgets and financial reports is not just a concern for accountants. They point out that the financial statements of Canada's major cities show a cumulative surplus over the past five years of $29 billion - Calgary, Saskatoon, Halton Region, Vaughan and Markham have run the largest surpluses compared to their revenues - and that the cities with the biggest gaps between budget targets and end-of-year spending have tended to have larger surpluses. "This record suggests that cities have tended to over-charge up-front for capital projects." noted Robson. "And thus not matched the costs of these projects to the taxpayers who will enjoy their benefits over time."
The authors note that changes in provincial legislation could foster better municipal financial reporting, but also that cities can take the initiative to present more meaningful numbers on their own. "Both provinces and municipalities should take steps to improve the fiscal accountability of municipalities." said Dachis.
The C. D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada's trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada's most influential think tank.
SOURCE C.D. Howe Institute